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 June 03, 2011
Duke Energy Likely to Shutter Two Coal-Fired Units in Indiana

 Duke Energy will retire two coal-fired units at the four-unit 560-MW Gallagher Station in New Albany, Ind., instead of converting them to natural gas if regulators approve the company’s plans to buy the 640-MW natural gas–fired Vermillion Energy Facility in Cayuga, Ind.

The company was required to shut down Units 1 and 3 at the Gallagher plant or convert them to natural gas as part of the 2009 settlement between Duke Energy and the Environmental Protection Agency (EPA) and Justice Department to resolve Clean Air Act violations at the plant. The settlement, reached after a decade of litigation, called for Duke Energy to spend about $85 million, which included converting the units as well as installing pollution controls for sulfur dioxide at Units 2 and 4 at the plant.

Duke Energy Indiana spokesperson Angeline Protogere told POWERnews that the company’s plans to retire the two units depended on approvals from the Indiana Utility Regulatory Commission (IURC) and the Federal Energy Regulatory Commission. Decisions from both agencies are expected in mid-November. The settlement requires the company decide whether to convert or retire the units by Jan. 1, 2012. “If we elect to retire the units, we would need to do so within 30 days of that date,” she said.

Duke Energy currently owns 75% of the Vermillion Plant; Wabash Valley Power Association owns the remainder. Buying the plant would cost much less than converting the Gallagher units to gas, which would require installing a new 19-mile gas pipeline, Protogere said. The conversions could cost up to $263/kW compared with $173/kW to buy the Vermillion plant.

Construction of the 560-MW Gallagher Plant was completed in 1961. Unit 2 began operating in 1958, Unit 1 in 1959, Unit 3 in 1960, and Unit 4 in 1961. The Vermillion Energy Facility began commercial operation in June 2000, and it consists of eight combustion turbines operating in simple-cycle mode.

Analysts estimate that, facing regulatory uncertainty from a rainbow of recently proposed or finalized environmental rules, the U.S. could see up to 64,000 MW in coal capacity retirements. The bulk of these retirements—up to 46% of the total—will be in the Midwest, though the Southeast will see 31% of the retirements, as Black & Veatch Managing Director for Management Consulting Mark Griffith told attendees at a meeting in Houston, Texas, on Thursday.

“Coal asset owners are facing major capital and operating costs that will impact asset value asset remaining life and market conditions,” he said. Griffith also said that there are many older—and smaller—units needing significant air quality control improvements to meet “Best Available Control Technology” standards.

For more on possible coal capacity retirements, see the May issue of POWER at www.powermag.com.

Sources: POWERnews, Duke Energy Indiana, Black & Veatch